Neuroceuticals

Wall Street might have to start drug testing traders:

Brain Scans Show Link Between Lust for Sex and Money, Bloomberg: Late at night ... at Stanford University, Brian Knutson made a startling discovery: Our brains lust after money, just like they crave sex. ... The pleasure of orgasm, the high from cocaine, the rush of buying Google Inc. at $450 a share --- the same neural network governs all three... What's more, our primal pleasure circuits can, and often do, override our seat of reason, the brain's frontal cortex...

Knutson ... knows how heretical his findings are. Wall Street is dedicated to the principle that when it comes to money, logic prevails... The idea is enshrined in the ... theory of rational expectations, for which Robert Lucas won the Nobel ... Prize in Economic Sciences in 1995. ... In practice, of course, investors do foolish things all the time. ... This controversial field, called neurofinance, may represent the next great frontier on Wall Street, says Daniel Kahneman, who won the 2002 Nobel Prize in economics for his pioneering work in behavioral finance, which fuses classical economic theory and studies of human psychology. "The brain scientists are the wave of the future in the financial world,'' Kahneman ...

Neuroscientists may even develop psychoactive drugs, or neuroceuticals, that make people better, more-profitable traders, Knutson and other psychologists say. Look at Prozac. ... Prozac and other drugs have ... profoundly changed the way we view the mind. People recognize that chemistry drives their brains ... and that chemistry can change them. Similar drugs, ones that improve a trader's decision making by 20-30 percent, may be just a few years away ... If these neuroceuticals work, they could rock Wall Street...

So far, the hopes and claims of neurofinance have far outpaced its science. Few investment professionals have even heard of the field. Many who have dismiss it as hokum. "It's the latest malarkey,'' says Richard Michaud, president of ... New Frontier Advisors LLC... Michaud ... says neurofinance and its forerunner, behavioral finance, have no place on Wall Street. ...

Andrew Lo, a professor of finance and investment at the MIT Sloan School of Management, says ... "We can't answer any more questions by running another regression analysis. Now, we need to get inside the brain to understand why people make decisions.'' ...

Not everyone says scientists should spend time and money plumbing the brains of traders and consumers. Neurofinance research ties up expensive medical equipment that should be used to heal people, says Gary Ruskin, ... "There's an opportunity cost of using these machines,'' Ruskin... says. ''I'd rather we use them to spot a tumor and save a life than earn an extra fraction of a percentage from stock trades.''...

Is it true that this research crowds out medical care? I would have guessed that the imaging machines are only used when they would otherwise sit idle.

Comments

[save_the_rustbelt]

MRI technology allows us to map the brain while various stimuli are applied. We could wave $20 bills at a Wall Street trader and see if there are any brain waves.

In related news, Berkely Nutraceuticals in Cincinnati Ohio was raided by the feds.

Berkeely sells pills to make men, ah, more manly, you know.

Apparently there was insufficent "growth" coming from this particular company.

[Emmanuel]

I'm into behavioral finance, so this is of interest to me. Still, studying floor traders will yield limited insight, I think. If around 40% of stockmarket activity is program trading, maybe we need to study the wiring of those doing the programming as more and more automation creeps into trading activity.

Watching the markets is so boring nowadays. Watching computers deal with each other is not my idea of fun.

[cm]

The "imaging machines" are used whenever somebody can be billed for their use. Without billing, they will sit idle.

[Lord]

There are drugs that can accomplish this but they do so by diminishing the excitement of winning and losing, and therefore the interest in doing so. They might make more money but they will be too bored to do so.

[calmo]

I shall make an important announcement (I don't care if it is is misspelled) as soon as I recover from that phrase "plumbing the brain". [Harkening back to those good old days of frontal lobotomies --real men boring real holes.]
But first, I need to confer with my 2 key advisors: Arnold and the Dali Lama.